West Coast Trusts & Estates Litigation

The Sterlings and their lawsuits have entered another chapter, which allows us to learn more about community property. Donald Sterling’s wife, Shelly (Rochelle) Sterling, sued her husband’s former companion, V. Stiviano, last March to recover her interest in $3.6 million in cash and gifts, including cars and a house. Los Angeles Superior Court Judge Richard Fruin Jr. heard closing arguments earlier this month (Los Angeles Superior Court Case No BC538659), but has not yet issued a ruling. This is the same Judge who dismissed Ms. Stiviano’s cross-complaint under California’s Anti-SLAPP statute and her defamation lawsuit against Mrs. Sterling last October.

Mrs. Sterling argues she can recover the gifts because they were the community property of her and Mr. Sterling. Eight states, including California, have community property systems. A community property system treats property (including cash and other assets) acquired during a marriage as jointly owned by both spouses. Even if only one spouse earned income, both spouses are treated as co-owners of the money earned and whatever was purchased with the earnings.

This gives Mrs. Sterling a chance to recover some of the assets Mr. Sterling allegedly gave to Ms. Stiviano: California law prohibits one spouse from giving away community property without the written consent of the other spouse. (California Family Code § 1100(b).) Mrs. Sterling claims that because she did not consent in writing to the gifts, she can recover all of Mr. Sterling’s gifts to Ms. Stiviano.

Ms. Stiviano denies that all of the gifts came from Mr. Sterling, and also argues that she shouldn’t be responsible for returning the community property. Ms. Stiviano’s attorney, Mac Nehoray (perhaps confusing paying for services with gifts), explained “Say he gave $2,000 to a call girl. Mrs. Sterling can’t go and try to get that money back. We know that's not how it works.”

In other California cases, the courts have rescinded gifts of community property made without the consent of the other spouse. The most famous case is Fields v. Michael (1949) (91 Cal.App.2d 443, 205 P.2d 402), where comedian and actor W. C. Fields’ widow sued his estate to recover the gifts her husband made out of community property. The court noted that a spouse can void an entire gift of community property during the gifting spouse’s lifetime, and one-half of the gift after the gifting spouse dies. In the Fields case the gifts had been dissipated, therefore the widow went after his estate and the court also held “a wife whose community rights have been violated…. is entitled to pursue whatever course is best calculated to give her effective relief.”

The Sterlings have already lost ownership of the Los Angeles Clippers in a forced sale to former Microsoft CEO, Steve Ballmer. Mr. Sterling, admitted to the California Bar in 1961, is continuing with his antitrust lawsuit against the NBA, recently adding as defendants Mrs. Sterling and two doctors who indicated he had Alzheimer’s symptoms. In the past, one or both of the Sterlings have sued former players, coaches and mistresses.

The decision of a Los Angeles probate judge this past Monday provides a glimpse not only into the private lives of owners of an NBA franchise, but also into arenas which often confront elderly couples – trusts, competency, accusations of undue influence, mental examinations, and conservatorships.

Judge Michael Levanas, in the Sterling Family Trust matter, evaluated the testimony of both Shelly Sterling and Donald Sterling, found Mrs. Sterling to be more credible and issued a tentative oral ruling giving her authority to move forward with the sale of the Los Angeles Clippers for $2 billion to former Microsoft CEO Steve Ballmer. Mrs. Sterling entered into the sale as the sole trustee.

Many husband and wife trust agreements contain trustee provisions similar to that found in the Sterling Trust, allowing one spouse to take over administration of the trust if two doctors find the other spouse to be mentally incompetent. An organic brain disease, such as dementia or Alzheimer’s disease, that results in progressive mental decline, often does not provide a clear line demonstrating lack of competence. This leaves room for debate on when precisely an individual should no longer have a “say” in his or her affairs and whether decisions made during a time of vulnerability should be binding at a later time.

One issue Donald Sterling’s attorneys argued to Judge Levanas was that Shelly Sterling had tricked him into being examined by the two doctors. Earlier this month, Mr. Sterling’s attorneys had unsuccessfully argued that medical privacy rules such as those under HIPPA (the Health Insurance Portability and Accountability Act) and the California Confidentiality of Medical Information Act should keep out the doctors’ testimony. Counsel for Mr. Sterling also argued that Mr. Sterling had revoked the trust last month. That revocation, if upheld, would have caused $500 million in trust debt to become due. Yet another argument from Mr. Sterling ,which didn’t impress Judge Levanas last week, was that he should be allowed to put on testimony as to the ‘intent’ of the trust document.

The July 28th ruling was an oral decision, and like many probate orders is appealable, but Judge Levanas indicated there would not be a stay of the ruling during the pendency of the anticipated appeal. Since the NBA put a September 15th deadline on the sale, that aspect of the order was especially good news to Mr. Ballmer, Mrs. Sterling and the NBA.

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AboutDuring most of his thirty-five years in the practice of law, Mr. Keeler has concentrated on estate and trust litigation. Licensed in Oregon and California, Mr. Keeler has tried cases involving estates, trusts and conservatorships throughout Oregon, California and neighboring states. Mr. Keeler is also certified by The State Bar of California Board of Legal Specialization in Estate Planning and Trust & Probate Law.